proximity a next generation connection
Proximity Research Report
Making Music Relevant Again
Saving The Music Industry
By: Travis Jones
Spring 2010
Table of Contents
Executive Summary ..............................................................1
Introduction: Statistics on Music Piracy ..............................2
Reaching the Consumer.........................................................3
Trends in Music Piracy...........................................................4
Alternative Business Models..................................................5
Product Placement to Increase Revenue................................6
Recommendations ..................................................................7
Attachment 1: The Success of Radiohead..............................8
Attachment 2: Can Spotify Save the Music Industry? ..........9
References ...............................................................................10
Saving the Industry - 1
Executive Summary
The music industry is facing a major crisis at the moment as album sales are at an all time low and the campaign to eliminate music piracy is failing. Focus group results have shown that Gen-Y is not going to stop downloading music and therefore the music industry must adapt. Although purchasing single tracks off iTunes is a popular and legal way for people to get their music, it is not going to save the industry and most of Gen-Y still downloads music illegally. There are various ways that the music industry as a whole can compete with illegal music downloading but it will require dedication and creativity. One example was made famous by the band Radiohead when they released their album In Rainbows. Radiohead allowed fans to download their album for any price they wanted to pay even if it was nothing at all. The pay what you want model was also used by the band Nine Inch Nails and experienced similar success. Since the music industry will not come close to eliminating music piracy they also must look for ways to increase revenue and offer incentives to people to actually purchase music. One way to increase revenue is through product placement in music videos. Incentives can be offered by giving out "reward points" for buying music that can go toward concerts, music merchandise or memorabilia. It is now or never for the music industry and they must look at different business models to stay relevant.
Saving The Industry - 2
Introduction - Statistics on Music Piracy
Focus groups have shown that a large majority of gen-Y users illegally downloads music, but the question is how many?
Illegal downloading is obviously a very popular form of obtaining music as almost 2/3 of the population engages in it but this does not show the whole story as it represents all age groups. The next figure shows much much Gen-Y copies music (illegal downloading, CD burning, CD ripping, ect), and the results reinforces the results found in Proximity focus groups:
Research conducted by the Pew Research Center shows that people are interested in five areas that pertain to the music business and the topic of downloading. These five items include:
Cost: people do not want to pay for something they view as over priced if they can get it for free online. People are willing to pay lower prices for music than what is currently being offered however.
Portability: Some subscription services do not allow users the ability to import the music they pay for to an MP3 device. People want to be able to put the music they buy on any device they own.
Mobility: People desire the ability to access music from their wireless devices.
Choice: People want access to any song that has been recorded.
"Remixability": The option to remix the songs they purchased in any way they wish
Source: Pew Research Center
Most of these areas of interest can be addressed in the following business strategy proposals that will help the music industry.
Saving the Industry - 4
Trends in Music Piracy:
Since the inception of Napster, illegal file sharing has been one of the most popular (if not the most popular) way to obtain music. In 2000, Pew Research Center discovered that 25% of adults had downloading music illegally and 54% had done so with Napster. The implications of this has been an ever decreasing number of album sales. The following graph reports the decline in music sales:
Furthermore, the number of people who have have a P2P file sharing network on their computer has also increased over time rather than decrease. This is further proof that the campaign against file sharing has not worked. The music industry need to adapt new business strategies in order to survive in a world dominated by illegal music downloading as a result of these findings. Figure 4 shows the global increase in P2P file sharing networks between June, 2006 and June, 2008:
The report thus far has stated the need for alternative business models the music industry can use to compete with illegal downloading. These include: pay what you want, offer incentives, subscription services and lower prices.
Pay What You Want
This model was made famous by Radiohead (for more on their success see attachment 1) and the basic idea is to allow fans to download an album for any price they want including nothing at all. The voluntary price tag allows the consumer to pay what they value the music to be worth. This means that if a person just discovered an artist and want to explore the contents of the CD, they can pay anything they want and not lose a lot of money if they do not like the music. Conversely a person can pay more for an artist album that is their favorite artist, they have already heard the album or they are feeling generous. The music service Magnatune operates under this model with a minimum price of $5 per album (O'Hear). Reports suggest that even though people cannot pay less than $5 per album, they often pay more with an average price around $8 per album (O'Hear).
Incentives
A simple fact of economics is that people respond to incentives. It is true in all aspects of life including the work place, when applying for a credit card or making a purchase where they offer rewards cards, ect. There is no reason to believe that this basic concept cannot be applied toward the music industry. Record labels, the musicians and online music providers such as iTunes and Rhapsody could all begin to offer incentives for people to buy music. The concept would revolve around whenever someone purchases an album (physical or digital) they would receive reward points for their purchase. These points could then go toward concerts, merchandise, or access exclusive content, ect. Independent or local bands could also use this concept (many of them do already) when touring which would reward people who purchase a copy of their album by giving them a free shirt or possibly a download code to access unreleased tracks. By offering incentives, people will feel that their money is going further than just a song they could have gotten for free on the internet. Music producer Rick Ruban believes that expanding subscription services where an unlimited music catalog can be accessed from a car, TV, phone or computer is the solution to the industries problems (O'Hear). Rubin is quoted as saying, "...once that model is put into place, the industry will grow 10 times the size it is now.” (O'Hear)
Subscription Services
An alternative business model which has been used with relative success so far has been the subscription service model. These services allow users to download or stream any music they want (within the services catalog) for a monthly fee. One way to make subscriptions more popular however is to offer them DRM free which allows users to transfer there music to multiple devices (Agrawal). Popular subscription services include Rhapsody, Napster and Limewire to a certain extent. The company Spotify which has yet to come to the United States is a service that has the music world abuzz and it creates its revenue from advertisements (Agrawal). Some believe this service can save or at least significantly help the music industry. For more on Spotify see Attachment 2. The problem facing these companies are the same problems that the music industry as a whole faces which is who wants to buy music when they can get it for free. If the subscription services offered incentives to users this would as previously noted significantly improve their business. Regardless, many people believe that subscription services are the future of online music downloads.
Lower the Price
This alternative business strategy is fairly straight forward. If the music industry reduces the price of music both digital and physical, people will purchase more of it. It is hard to justify to oneself buying a physical album that costs between $10 and $15 when one can get the album for free. If the industry cut the price of a physical CD to $5-$8 people will be more willing to buy that CD. Likewise, even though 99 cents per song on iTunes is relatively cheap, if a person wants to purchase a full album it is still around the same price as a physical CD. Since you can pay almost the same amount for a digital album as a physical album it would make sense to cut the price of a single track to 20 cents, therefore making the full album much cheaper. The physical album comes with a CD casing and artwork (usually original art) which can justify the higher costs.
Saving the Industry - 6
Product Placement to Increase Revenue:
Lost revenue to the industry is a major factor in illegal downloading. One way the industry can make up for this lost revenue is through product placement. Contemporary artists such as Busta Rhymes, Jay-Z and Lady Gaga are all known for product placement in either song lyrics or in their music videos. Product placement allows both parties (the music industry and the brand) to benefit. The brand will receive a spike in sales just as the company Courvoisier did when its cognac product was mentioned in a Busta Rhymes single, and the label or musician does not have to pay much money up front for videos. This is an incredible way for music labels to save money in producing albums or music videos as the brand will pay for it. This saved money can go toward offering reward points to consumers to give them incentive to purchase music as mentioned earlier. An insider to the music and product placement world Adam Kluger states; "It will get to the point where the brand is paying for the entire production of an album, the labels and artists will not have to put up any money. So everything is profit. That’s 2 years away, not 10.” (PPN Staff)
Saving the Industry - 7
Recommendations:
Proximity focus group results show that Gen-Y does not care much about the music industry or recording labels. However, they are more willing to support the musician directly by going to concerts or sending donations. Gen-Y is not completely opposed to buying music as long as they know they are actually helping out the musician not the label. The focus group results also show that Gen-Y is not concerned about possible lawsuits that the RIAA is infamous for in their effort to eliminate illegal downloading.
Rather than wasting an enormous amount of money on a campaign to stamp out illegal downloading which does not work, the industry needs to look into new business models to stay competitive. There are a couple ways to do this:
Offer a "pay what you want" model for online downloads.
Follow the business plan of Spotify or other subscription services
Offer incentives to customers for purchasing music
If the music industry wants to remain relevant in a world driven by illegal music downloads, these are the three best possible alternative business strategies they can use. I would also recommend the use of product placement in music videos as a way to make up for lost revenue.
Saving the Industry - 8
Attachment #1: The Success of Radiohead
Radiohead made the "pay what you want" model famous
proximity
a next generation connection
Proximity Research Report
Making Music Relevant Again
Saving The Music Industry
By: Travis Jones
Spring 2010
Table of Contents
Executive Summary ..............................................................1
Introduction: Statistics on Music Piracy ..............................2
Reaching the Consumer.........................................................3
Trends in Music Piracy...........................................................4
Alternative Business Models..................................................5
Product Placement to Increase Revenue................................6
Recommendations ..................................................................7
Attachment 1: The Success of Radiohead..............................8
Attachment 2: Can Spotify Save the Music Industry? ..........9
References ...............................................................................10
Saving the Industry - 1
Executive SummaryThe music industry is facing a major crisis at the moment as album sales are at an all time low and the campaign to eliminate music piracy is failing. Focus group results have shown that Gen-Y is not going to stop downloading music and therefore the music industry must adapt. Although purchasing single tracks off iTunes is a popular and legal way for people to get their music, it is not going to save the industry and most of Gen-Y still downloads music illegally. There are various ways that the music industry as a whole can compete with illegal music downloading but it will require dedication and creativity. One example was made famous by the band Radiohead when they released their album In Rainbows. Radiohead allowed fans to download their album for any price they wanted to pay even if it was nothing at all. The pay what you want model was also used by the band Nine Inch Nails and experienced similar success. Since the music industry will not come close to eliminating music piracy they also must look for ways to increase revenue and offer incentives to people to actually purchase music. One way to increase revenue is through product placement in music videos. Incentives can be offered by giving out "reward points" for buying music that can go toward concerts, music merchandise or memorabilia. It is now or never for the music industry and they must look at different business models to stay relevant.
Saving The Industry - 2
Introduction - Statistics on Music Piracy
Focus groups have shown that a large majority of gen-Y users illegally downloads music, but the question is how many?
Source: http://www.itfacts.biz/music-consumption-statistics/1076
Illegal downloading is obviously a very popular form of obtaining music as almost 2/3 of the population engages in it but this does not show the whole story as it represents all age groups. The next figure shows much much Gen-Y copies music (illegal downloading, CD burning, CD ripping, ect), and the results reinforces the results found in Proximity focus groups:
Source: http://www.itfacts.biz/music-consumption-statistics/10786
Saving the Industry - 3
Reaching the Consumer:
Research conducted by the Pew Research Center shows that people are interested in five areas that pertain to the music business and the topic of downloading. These five items include:
Source: Pew Research CenterCost: people do not want to pay for something they view as over priced if they can get it for free online. People are willing to pay lower prices for music than what is currently being offered however.
Portability: Some subscription services do not allow users the ability to import the music they pay for to an MP3 device. People want to be able to put the music they buy on any device they own.
Mobility: People desire the ability to access music from their wireless devices.
Choice: People want access to any song that has been recorded.
"Remixability": The option to remix the songs they purchased in any way they wish
Most of these areas of interest can be addressed in the following business strategy proposals that will help the music industry.
Saving the Industry - 4
Trends in Music Piracy:
Since the inception of Napster, illegal file sharing has been one of the most popular (if not the most popular) way to obtain music. In 2000, Pew Research Center discovered that 25% of adults had downloading music illegally and 54% had done so with Napster. The implications of this has been an ever decreasing number of album sales. The following graph reports the decline in music sales:
Furthermore, the number of people who have have a P2P file sharing network on their computer has also increased over time rather than decrease. This is further proof that the campaign against file sharing has not worked. The music industry need to adapt new business strategies in order to survive in a world dominated by illegal music downloading as a result of these findings. Figure 4 shows the global increase in P2P file sharing networks between June, 2006 and June, 2008:
Source: http://www.pewinternet.org/Reports/2009/9-The-State-of-Music-Online-Ten-Years-After-Napster.aspx
Saving the Industry - 5
Alternative Business Models:
The report thus far has stated the need for alternative business models the music industry can use to compete with illegal downloading. These include: pay what you want, offer incentives, subscription services and lower prices.
Pay What You Want
This model was made famous by Radiohead (for more on their success see attachment 1) and the basic idea is to allow fans to download an album for any price they want including nothing at all. The voluntary price tag allows the consumer to pay what they value the music to be worth. This means that if a person just discovered an artist and want to explore the contents of the CD, they can pay anything they want and not lose a lot of money if they do not like the music. Conversely a person can pay more for an artist album that is their favorite artist, they have already heard the album or they are feeling generous. The music service Magnatune operates under this model with a minimum price of $5 per album (O'Hear). Reports suggest that even though people cannot pay less than $5 per album, they often pay more with an average price around $8 per album (O'Hear).
Incentives
A simple fact of economics is that people respond to incentives. It is true in all aspects of life including the work place, when applying for a credit card or making a purchase where they offer rewards cards, ect. There is no reason to believe that this basic concept cannot be applied toward the music industry. Record labels, the musicians and online music providers such as iTunes and Rhapsody could all begin to offer incentives for people to buy music. The concept would revolve around whenever someone purchases an album (physical or digital) they would receive reward points for their purchase. These points could then go toward concerts, merchandise, or access exclusive content, ect. Independent or local bands could also use this concept (many of them do already) when touring which would reward people who purchase a copy of their album by giving them a free shirt or possibly a download code to access unreleased tracks. By offering incentives, people will feel that their money is going further than just a song they could have gotten for free on the internet. Music producer Rick Ruban believes that expanding subscription services where an unlimited music catalog can be accessed from a car, TV, phone or computer is the solution to the industries problems (O'Hear). Rubin is quoted as saying, "...once that model is put into place, the industry will grow 10 times the size it is now.” (O'Hear)
Subscription Services
An alternative business model which has been used with relative success so far has been the subscription service model. These services allow users to download or stream any music they want (within the services catalog) for a monthly fee. One way to make subscriptions more popular however is to offer them DRM free which allows users to transfer there music to multiple devices (Agrawal). Popular subscription services include Rhapsody, Napster and Limewire to a certain extent. The company Spotify which has yet to come to the United States is a service that has the music world abuzz and it creates its revenue from advertisements (Agrawal). Some believe this service can save or at least significantly help the music industry. For more on Spotify see Attachment 2. The problem facing these companies are the same problems that the music industry as a whole faces which is who wants to buy music when they can get it for free. If the subscription services offered incentives to users this would as previously noted significantly improve their business. Regardless, many people believe that subscription services are the future of online music downloads.
Lower the Price
This alternative business strategy is fairly straight forward. If the music industry reduces the price of music both digital and physical, people will purchase more of it. It is hard to justify to oneself buying a physical album that costs between $10 and $15 when one can get the album for free. If the industry cut the price of a physical CD to $5-$8 people will be more willing to buy that CD. Likewise, even though 99 cents per song on iTunes is relatively cheap, if a person wants to purchase a full album it is still around the same price as a physical CD. Since you can pay almost the same amount for a digital album as a physical album it would make sense to cut the price of a single track to 20 cents, therefore making the full album much cheaper. The physical album comes with a CD casing and artwork (usually original art) which can justify the higher costs.
Saving the Industry - 6
Product Placement to Increase Revenue:
Lost revenue to the industry is a major factor in illegal downloading. One way the industry can make up for this lost revenue is through product placement. Contemporary artists such as Busta Rhymes, Jay-Z and Lady Gaga are all known for product placement in either song lyrics or in their music videos. Product placement allows both parties (the music industry and the brand) to benefit. The brand will receive a spike in sales just as the company Courvoisier did when its cognac product was mentioned in a Busta Rhymes single, and the label or musician does not have to pay much money up front for videos. This is an incredible way for music labels to save money in producing albums or music videos as the brand will pay for it. This saved money can go toward offering reward points to consumers to give them incentive to purchase music as mentioned earlier. An insider to the music and product placement world Adam Kluger states; "It will get to the point where the brand is paying for the entire production of an album, the labels and artists will not have to put up any money. So everything is profit. That’s 2 years away, not 10.” (PPN Staff)
Saving the Industry - 7
Recommendations:
Proximity focus group results show that Gen-Y does not care much about the music industry or recording labels. However, they are more willing to support the musician directly by going to concerts or sending donations. Gen-Y is not completely opposed to buying music as long as they know they are actually helping out the musician not the label. The focus group results also show that Gen-Y is not concerned about possible lawsuits that the RIAA is infamous for in their effort to eliminate illegal downloading.
Rather than wasting an enormous amount of money on a campaign to stamp out illegal downloading which does not work, the industry needs to look into new business models to stay competitive. There are a couple ways to do this:
Offer a "pay what you want" model for online downloads.
Follow the business plan of Spotify or other subscription services
Offer incentives to customers for purchasing music
If the music industry wants to remain relevant in a world driven by illegal music downloads, these are the three best possible alternative business strategies they can use. I would also recommend the use of product placement in music videos as a way to make up for lost revenue.
Saving the Industry - 8
Attachment #1: The Success of Radiohead
Radiohead made the "pay what you want" model famous
Source: http://www.globalnerdy.com/2008/10/16/radioheads-in-rainbows-experiment-was-a-success/
Saving the Industry - 9
Attachment #2: Can Spotify Save the Music Industry
Is the new music subscription service "Spotify" capable of changing Gen-Y's opinion on legal music downloading?
http://www.appscout.com/2010/03/sxsw_can_spotify_save_the_musi.php
Saving the Industry - 10
References:
"Music Consumption Statistics." IT Facts. 17 June 2008. Web. 17 May 2010. <http://www.itfacts.biz/music-consumption-statistics/10786>.
Agrawal, Mohit. "Business Models to Fight Music Piracy." Telecom Circle. 21 Feb. 2010. Web. 16 May 2010. <http://www.telecomcircle.com/2010/02/digital-music/>.
Buskirk, Eliot V. "Music Industry Gurus? Five Point Plan to Save Their Business | Listening Post." Wired News. 15 May 2008. Web. 15 May 2010. <http://www.wired.com/listening_post/2008/05/music-industry/>.
DeVilla, Joey. "Radiohead's "In Rainbows" Experiment Was a Success?." Global Nerdy. 16 Oct. 2008. Web. 17 May 2010. <http://www.globalnerdy.com/2008/10/16/radioheads-in-rainbows-experiment-was-a-success/>.
Madden, Mary. "The State of Music Online: Ten Years After Napster | Pew Research Center's Internet & American Life Project." Pew Research Center's Internet & American Life Project. 15 June 2009. Web. 17 May 2010. <http://www.pewinternet.org/Reports/2009/9-The-State-of-Music-Online-Ten-Years-After-Napster.aspx>.
O'Hear, Steve. "Music Industry: Five Alternative Business Models | Last100." Last100.com | Tracking the Digital Lifestyle. 11 Oct. 2007. Web. 14 May 2010. <http://www.last100.com/2007/10/11/music-industry-five-alternative-business-models/>.
PPN Staff. "Music Gets Branded." Product Placement News. 3 June 2009. Web. 17 May 2010. <http://www.productplacement.biz/200906043114/News/Music/music-gets-branded.html>.